Many people have gotten wealthy off their investment properties, which is why more and more investors are parking their money in real estate. Behind every high-rise building is a savvy entrepreneur collecting a big fat check every month. But just because you’re a small investor doesn’t mean you can’t partake in the fun. Commercial high-rises are just one part of the vast real estate industry.
Home investors have turned single-family properties into a lucrative revenue stream. Some property management firms have chosen to specialize in rental homes, while others are just homeowners with a spare property they want to monetize. Whether you’re a property guru looking to enter a new market or an individual investor, it’s important to consider a few things before jumping headfirst into the pool.
Managing an investment property is a full-time job. Here are a few tips to get you started.
1. Know your responsibilities
Before entering the real estate arena, you need to make sure that you can handle the responsibilities of being a landlord. Renting provides many benefits beyond the promise of profit: occupied properties are more secure and allows you to deduct related expenses from your tax return. You can also use the income to cover the mortgage and other bills.
However, you’ll find that there’s more to being a landlord than finding a tenant and handing over the keys. It’s your responsibility to keep your property in good condition. You’ll also have to perform regular maintenance and emergency repairs.
2. Invest in upgrades
Real estate is cyclical, but rental properties are often a buyer’s market. That means tenants have more negotiating power and the luxury of shopping around for rental homes. If you want to target a younger and more affluent demographic, you need to invest in the necessary upgrades to make your rental property more attractive.
For starters, the property must be clean inside and out. The kitchen appliances and bathroom fixtures must also be in working condition. If the property is looking a little worse for wear or hasn’t been updated in decades, you might want to buy new fixtures and start a renovation project. You might also want to invest in a home security system to give potential tenants some peace of mind.
3. Learn how to market
Once your property has been updated, your next task is to get the word out. After all, no one’s going to rent it if no one knows it exists. But it isn’t enough to buy some ad space and call it a day. You also need to do some marketing magic. For instance, you need to write compelling copy that describes the best parts of your property. Make sure to highlight important features like a home security system and air conditioning.
Adjectives are everything when writing a listing, but some words can add value to your rental. Words such as “hardwood,” “marble,” and “chef’s kitchen” can be used to describe the upgrades and renovations you’ve made. Just don’t lie and say you have granite countertops when it’s actually made of concrete.
If marketing is too difficult a job for you, a property management firm can take care of marketing and tenant relations for you. However, you’ll have to fork over up to 10 percent of the monthly rent as compensation.
4. Manage your finances
Renting out a residential property involves a lot of paperwork and red tape. You’ll have to deal with lawyers and accountants to make sure you’re all sorted out on the legal side. Real estate is a business, and running a business means you have to comply with the relevant laws and regulations.
For instance, while rental properties are tax-deductible, you need to check which expenses are eligible for deductions. There are also caps on the amount you can deduct every year, among other things. If you don’t stay on top of your finances, you run the risk of breaking tax laws.
It helps to hire a real estate attorney to handle the legal work. Landlords and tenants are bound by contracts, and you want to make sure that your contract is legally sound. Your lawyer can draft your lease and any other documents you and your tenants need.
A final word
Everyone benefits from real estate investments. Investors can earn income on their properties while tenants can enjoy the perks of a single-family home without the associated cost. However, you need to make sure that you’ve prepared yourself for the responsibilities of a landlord.